Chapter 8, B. Claims Against the Insured's Bankruptcy Estate an Insurer

• Jurisdiction: United States

B. Claims Against the Insured's Bankruptcy Estate an Insurer

If the debtor does not pay insurance premiums voluntarily, the insurer will have a claim against the debtor's estate. These claims will have different classifications depending on when they became due.

An insurer may be entitled to priority for post-petition premium payments because such expenses are necessary to the administration of the estate. To the contrary, pre-petition unpaid premiums are generally considered unsecured claims of the insurer. For example, in Matter of Arrow Carrier Corp.,²¹⁵ the insurer asserted that, based on a state statute, unpaid worker's compensation premiums were entitled to priority treatment. The court held that bankruptcy law determined the status of the claim, not the state statute, and that the unpaid premiums were general unsecured claims.

The U.S. Supreme Court resolved a conflict among the circuits regarding treating unpaid workers' compensation premiums as a priority. Insurers have argued that these premiums should be considered "contributions to an employee benefit plan," and thus entitled priority under § 507(a)(5). The Supreme Court found that workers' compensation does not compensate employees for work performed, but rather for on-the-job injuries. The Court therefore held that an insurer's claim for unpaid workers' compensation premiums is entitled to priority under 11 U.S.C. § 507(a)(5).²¹⁶

An insurer must also be aware that 11 U.S.C. § 108(b) may operate to extend the time in which a debtor may make a premium payment. When the debtor files for bankruptcy prior to the expiration of the grace period contained within the policy, the bankruptcy estate has 60 days from the date of filing the petition to pay the premium.²¹⁷ If the premium payment is made by the debtor within the 60-day grace period provided in § 108(b), it may be...